The Construction Industry Scheme (CIS) is a set of special rules for tax and national insurance for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. Under the scheme, contractors deduct money from a subcontractor’s payments and pass it to HMRC.

Contractors are defined as those who pay subcontractors, for construction work or spent an average of more than £1m a year on construction over a three-year period. Subcontractors do not have to register for the CIS but contractors must deduct 30% from their payments to unregistered subcontractors.

The alternative is to register as a CIS subcontractor, where a 20% deduction is taken or to apply for gross payment status where the contractor will not make any deductions and the subcontractor is responsible to pay all their tax and national insurance at the end of the tax year.

The CIS covers all construction work carried out in the UK, including jobs such as:

site preparation

alterations

dismantling

construction

repairs

decorating

demolition

The UK includes UK territorial waters up to the 12-mile limit. Exceptions to the definition of construction work includes, professional work done by architects and surveyors, carpet fitting, scaffolding hire (with no labour) and work on construction sites that’s clearly not construction. The CIS does not apply to construction work carried on outside the UK.

The Construction Industry Scheme (CIS) is a set of special rules for tax and national insurance (NI) for those working in the construction industry. Businesses in the construction industry are known as ‘contractors’ and ‘subcontractors’. The scheme applies mainly to contractors and subcontractors involved in construction.

A recent First-Tier Tribunal decision examined a case, where a limited company in the floor and wall covering business had failed to make monthly returns on time for the period April 2016 – December 2016. There are penalties for late submission of CIS contractor monthly returns. The penalties increase the longer the returns are outstanding. HMRC issued the company with penalty assessments of £3,200 which were appealed. The company appealed on the basis of having a reasonable excuse for making late returns.

The issue at hand centred on changes to HMRC’s policies, which made online filing compulsory from April 2016. The company had previously filed paper returns without issue. However, the process for filing online was exacerbated as the person responsible for making the filings was not IT literate.

The person in question made every effort to resolve this issue with HMRC but was unable to activate the online filing system, partly due to the activation code being sent to the wrong address. The problems increased when the staff member ended up in hospital suffering from stress and anxiety, which may have been partly due to the issue of making the CIS filings. A request for digital exclusion was also rejected.

The Tribunal examined the facts and were clear that the combination of health problems and the inability to file online constituted a reasonable excuse for the defaults. The penalties were dismissed.